They see the potential for faster growth in the tea and salt business, rapid expansion in pulse/spices, and margin expansion from merger synergies. We expect a 16 per cent earnings compound annual growth rate (CAGR) over FY20-23 and an ROIC (return on invested capital) of 34 per cent by FY23.
In May last year, Tata Group had decided to demerge the consumer business of Tata Chemicals and merge it with Tata Global Beverages. Tata Global Beverages is now renamed as Tata Consumer Products.
Credit Suisse notes that TCL has three businesses in different growth/profitability life stages: India core FMCG, international, and new food businesses/Starbucks. Given this, it has initiated the coverage on the stock with an "Outperform" rating and the target price of Rs 490.
"Starbucks has strong long-term prospects in India with no national competition in the café market. The business is close to breakeven. While COVID-19 is expected set back the business by a year in FY21, long-term prospects are intact," it said.
Meanwhile, competitive pressure in tea, the extended impact of Covid-19 on demand, and lack of brand pull in pulses are some of the risks to the company's growth prospects, the brokerage notes.